Pinnacle Financial Partners(PNFP) - 2024 Q3 - Quarterly Results

Earnings & Performance Summary Pinnacle Financial Partners reported a strong third quarter for 2024, with GAAP diluted EPS of $1.86, a 10.1% increase year-over-year, driven by double-digit linked-quarter annualized growth in earning assets, strong core deposit growth, and an expanding net interest margin Q3 2024 Performance Highlights Pinnacle Financial Partners reported a strong third quarter for 2024, with GAAP diluted EPS of $1.86, a 10.1% increase year-over-year, driven by double-digit linked-quarter annualized growth in earning assets, strong core deposit growth, and an expanding net interest margin Earnings Per Share (Diluted) | Period | GAAP Diluted EPS | Adjusted Diluted EPS | YoY Change (GAAP) | | :--- | :--- | :--- | :--- | | Q3 2024 | $1.86 | $1.86 | +10.1% | | Q2 2024 | $0.64 | $1.63 | N/A | | Q3 2023 | $1.69 | $1.79 | N/A | - The CEO highlighted the quarter's success, attributing it to double-digit growth in earning assets, nearly double-digit core deposit growth, and an expanding net interest margin[2] - The firm continues to gain market share across its Southeastern markets, supported by high client satisfaction scores and recognition by Forbes as the third-best financial services firm to work for in the U.S[2] CEO Outlook The CEO expressed a positive outlook, highlighting robust hiring and anticipating double-digit growth for 2025, well-positioned for a potential declining interest rate environment - The company has hired 126 new revenue producers year-to-date and expects hiring to remain active, projecting double-digit growth for 2025[3] - Management believes the firm is well-positioned for a potential declining interest rate environment, which could lead to a more favorable yield curve and an improved revenue outlook for 2025[3] Financial Position Analysis Total assets grew to $50.7 billion as of September 30, 2024, reflecting strong linked-quarter annualized and year-over-year increases in loans, securities, and interest-earning assets Balance Sheet Growth Total assets grew to $50.7 billion as of September 30, 2024, reflecting strong linked-quarter annualized and year-over-year increases in loans, securities, and interest-earning assets Select Balance Sheet Items (in thousands) | Account | Sept 30, 2024 | June 30, 2024 | Sept 30, 2023 | YoY % Change | | :--- | :--- | :--- | :--- | :--- | | Total Assets | $50,701,888 | $49,366,969 | $47,523,790 | 6.7% | | Loans | $34,308,310 | $33,769,150 | $31,943,284 | 7.4% | | Securities | $8,293,241 | $7,882,891 | $6,882,276 | 20.5% | | Total interest-earning assets | $45,411,834 | $44,085,951 | $42,338,012 | 7.3% | Loan and Deposit Analysis The company achieved strong core deposit growth and strategic loan portfolio shifts, increasing C&I and owner-occupied CRE while reducing non-owner occupied CRE exposure to meet target concentrations Funding Composition (in thousands) | Account | Sept 30, 2024 | June 30, 2024 | Sept 30, 2023 | YoY % Change | | :--- | :--- | :--- | :--- | :--- | | Noninterest-bearing deposits | $8,229,394 | $7,932,882 | $8,324,325 | (1.1)% | | Interest-bearing core deposits | $27,535,246 | $27,024,945 | $25,282,458 | 8.9% | | Total funding | $43,736,839 | $42,527,530 | $41,027,124 | 6.6% | - The loan portfolio strategy focused on growing C&I and owner-occupied CRE loans (+$705.6M) while decreasing non-owner occupied CRE (-$186.9M)[5] - The company is actively reducing its exposure to construction, land development, and non-owner occupied CRE loans, aiming to bring the ratio to total risk-based capital below 225% from its current 243.3%[5] - Core deposit growth has been a key focus in 2024, with over $2.0 billion gathered year-to-date, supported by investment in 16 new office locations over the last two years[6] Revenue and Profitability Analysis Pre-tax, pre-provision net revenue for Q3 2024 increased 6.5% year-over-year to $207.4 million, driven by net interest income growth and an expanded net interest margin, alongside improved efficiency and strong return on tangible common equity PPNR and Key Metrics Pre-tax, pre-provision net revenue for Q3 2024 increased 6.5% year-over-year to $207.4 million, driven by net interest income growth and an expanded net interest margin, alongside improved efficiency and strong return on tangible common equity PPNR and Components (Q3 2024 vs Q3 2023, in thousands) | Metric | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $351,504 | $317,242 | 10.8% | | Noninterest Income | $115,242 | $90,797 | 26.9% | | Total Revenues | $466,746 | $408,039 | 14.4% | | Noninterest Expense | $259,319 | $213,233 | 21.6% | | PPNR | $207,427 | $194,806 | 6.5% | Key Performance Ratios | Ratio | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Net Interest Margin | 3.22% | 3.14% | 3.06% | | Efficiency Ratio | 55.56% | 74.04% | 52.26% | | Return on Average Assets | 1.15% | 0.41% | 1.08% | | Return on Avg. Tangible Common Equity | 13.61% | 4.90% | 13.43% | - The CFO attributed the margin expansion primarily to securities portfolio restructuring initiatives from Q2 and well-contained deposit pricing[15] Noninterest Income Analysis Total noninterest income for Q3 2024 increased 26.9% year-over-year to $115.2 million, primarily driven by wealth management revenue growth, partially offset by a decline in income from the BHG investment Adjusted Noninterest Income (in thousands) | Metric | Q3 2024 | Q2 2024 | Q3 2023 | YoY % Change | | :--- | :--- | :--- | :--- | :--- | | Noninterest Income (GAAP) | $115,242 | $34,288 | $90,797 | 26.9% | | Less: Investment losses, net | — | $72,103 | $9,727 | (100.0)% | | Adjusted Noninterest Income | $115,242 | $106,391 | $100,524 | 14.6% | - Wealth management revenues (investment, trust, insurance) increased 29.7% YoY to $29.5 million, driven by increased capacity from new revenue producers and strategic market expansions[10] - Income from the investment in Banker's Healthcare Group (BHG) declined 34.4% YoY to $16.4 million[10][15] Noninterest Expense Analysis Noninterest expense for Q3 2024 increased 21.6% year-over-year to $259.3 million, primarily due to higher salaries, employee benefits, and increased equipment and occupancy costs - Salaries and employee benefits, the largest expense component, increased 22.9% YoY to $160.2 million[12] - The increase in personnel costs was due to a 5.6% YoY increase in full-time equivalent associates (to 3,516.5) and a higher accrual for annual cash incentive plan payouts, now at approximately 90% of target[12][15] - Equipment and occupancy costs grew 15.3% YoY to $42.6 million, attributed to new equipment, new facilities, and rent escalators[13] Capital, Credit, and Shareholder Returns The company maintained strong capital ratios, with CET1 increasing to 10.8% and tangible book value per common share growing, while credit quality remained strong despite a slight increase in nonperforming assets due to a single commercial loan downgrade Capital and Credit Quality The company maintained strong capital ratios, with CET1 increasing to 10.8% and tangible book value per common share growing, while credit quality remained strong despite a slight increase in nonperforming assets due to a single commercial loan downgrade Key Capital and Credit Metrics | Metric | Sept 30, 2024 | Dec 31, 2023 | Sept 30, 2023 | | :--- | :--- | :--- | :--- | | Tangible book value per common share | $55.12 | $51.38 | $48.78 | | Common equity Tier 1 risk-based capital | 10.8% | 10.3% | 10.3% | | Annualized net loan charge-offs to avg. loans | 0.21% | 0.17% | 0.23% | | Nonperforming assets to total loans & ORE | 0.35% | 0.27% | 0.14% | - Book value per common share increased to $79.33, an annualized linked-quarter increase of 11.3%[17] - The increase in nonperforming assets from the second quarter was primarily driven by the downgrade of a previously classified commercial and industrial loan, which had a partial charge-off of approximately $9.0 million[17] Dividends Declared The Board of Directors declared a quarterly cash dividend of $0.22 per common share and a quarterly cash dividend of $16.88 per share for the Series B Preferred Stock, both payable in November 2024 - A quarterly cash dividend of $0.22 per common share was declared, to be paid on Nov. 29, 2024, to shareholders of record as of Nov. 1, 2024[18] - A quarterly cash dividend of approximately $3.8 million, or $16.88 per share ($0.422 per depositary share), was declared for the Series B Preferred Stock[18] Appendix: Financial Statements & Other Information This section provides important disclosures, unaudited consolidated financial statements, and supplemental data with non-GAAP reconciliations for comprehensive financial analysis Disclosures This section outlines important disclosures regarding forward-looking statements and explains the use of non-GAAP financial measures, with reconciliations provided for transparency - The report contains forward-looking statements subject to known and unknown risks, including deterioration in borrower financial condition, interest rate fluctuations, and competitive pressures[22][23] - The release uses non-GAAP financial measures to facilitate period-to-period comparisons and provide meaningful indications of operating performance, though these may not be comparable to other companies[24][25] Consolidated Financial Statements The report includes unaudited consolidated financial statements as of September 30, 2024, providing a detailed view of the company's financial position and operational performance Consolidated Balance Sheet Highlights (in thousands) | Account | Sept 30, 2024 | Sept 30, 2023 | | :--- | :--- | :--- | | Total Assets | $50,701,888 | $47,523,790 | | Loans, net | $33,916,776 | $31,597,092 | | Total Deposits | $40,954,888 | $38,295,809 | | Total Liabilities | $44,357,630 | $41,686,149 | | Total Shareholders' Equity | $6,344,258 | $5,837,641 | Consolidated Statement of Operations Highlights (Q3 2024, in thousands) | Account | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Net Interest Income | $351,504 | $317,242 | | Provision for Credit Losses | $26,281 | $26,826 | | Noninterest Income | $115,242 | $90,797 | | Noninterest Expense | $259,319 | $213,233 | | Net Income | $146,691 | $132,603 | Supplemental Data and Non-GAAP Reconciliations This section provides extensive supplemental financial data, including quarterly trends, asset quality, and capital ratios, along with comprehensive reconciliation tables for non-GAAP financial measures - Detailed quarterly data tables are provided for balance sheet items, income statement data, profitability ratios, asset quality, and capital ratios, allowing for trend analysis[33][38][41] - Comprehensive reconciliations are provided for non-GAAP measures, detailing adjustments for items like investment losses, FDIC special assessments, and fees related to capital optimization initiatives[43][45][47]